Today in Round Five, Chaffin and Enderle take on a related issue to the one debated over the previous two rounds. The question:

MacNewsWorld: To what degree is Apple moving in the right direction, and to what degree should it switch its course?

ENDERLE RUSHES CHAFFIN

Apple is headed in the right direction; it just isn't moving fast enough. In agreeing to let HP rebrand the iPod, it is clearly shifting from its proprietary PC core to better adapt to a market that values it for things other than PCs.

With Panther, Apple finally began to make its legacy hardware business more compatible with Windows standards. With iTunes and the iPod, it embraced the massive Windows installed base. Had it not done so, the company probably would not have been profitable for much of the last year.

Its software has gotten more and more competitive with products from companies like Adobe as it evolves from being less platform-centric and more customer-centric. Meanwhile, its message is less about Mac versus Windows, and more about what you can do with the software and accessories that it sells.

In short, Apple slowly is becoming less and less of a Mac OS company and more and more a firm that will go where its customers want. It simply isn't moving fast enough.

A Two-Year Window

Apple has about 24 months to get its act together and position itself for the post-Longhorn world of Linux and Windows. If it doesn't offer solutions that will play on those platforms the way iTunes currently does on Windows, it will probably become a footnote by the end of the decade.

With each step, Apple, with painful determination, is marching in this direction. Internally it is acting like it really doesn't know where it's going, even though the direction looks incredibly clear from outside.

Shifting into High Gear

Apple needs to raise its head up, take the company out of compound-low, and shift into high gear so that, when the market is ready for a cross-platform Apple solution, Adobe or Microsoft or IBM will not be the ones supplying it.

Maybe this means Apple broadens its partnership with HP, and maybe this means the accelerated extreme makeover of Apple, but this is the direction that the firm is headed. In a market measured by Internet minutes, Apple doesn't have mainframe hours to execute. The direction is fine; Apple simply needs to step up the pace.

CHAFFIN REACTS WITH BOTH FISTS

When it comes to hardware and software, Apple is on a great path. The Mac platform has never been as solid as it is now. The company's hardware offerings are fantastic; its OS the best on the planet; and users have more apps than ever to use. There are even more games on the Mac platform than ever before, a remarkable feat considering the move to consoles in the gaming industry.

There are only two pieces of the puzzle that are missing, in my never-humble opinion, and that is Apple's pricing and its (lack of) marketing for the Mac.

One of Only Two

First of all, I understand that Apple needs to charge a premium for its computer. If you look at PC vendors, there are two, and only two, making a profit on hardware sales: Dell and Apple. All of the other major players are losing money in this area.

Dell makes money on hardware because it is the best in the world at making cheap PCs cheaper than everyone else. No one can out-Dell Dell. What Steve Jobs and his team have done is to change the rules by which it competes.

Understanding that the laws of economics would never allow Apple to compete head to head with Dell, Apple has chosen to compete on style, lifestyle and quality. By doing so, Apple has managed to create a market where it can charge enough to properly fund research and development, which itself has led to such things as the iTunes Music Store and iPod.

Note that toaster-maker Dell has had to go the rebranding route to compete in these markets that Apple effectively invented, despite the fact that Dell is the king-daddy PC maker. Apple's industry-high margins are what have allowed this to happen, and I am a strong believer that the high-margin strategy is an absolute requirement for a sustainable Apple.

Hole in the Apple

However, there's a glaring hole in Apple's approach, and that is in the entry-level market -- the market from which new users typically come.

If you look at Apple's offerings, they are all high-end products. Even the entry-level eMac, competitively priced at US$799, has FireWire ports, a modem, a 17-inch CRT, a CD burner and so forth. So, while the eMac competes favorably with any other system having similar specs, Apple does not have a bare-bones system designed to lure people into its much-touted retail showrooms.

The same is true with its portable and professional desktop systems. Apple's pricing is very competitive when you are evaluating all of the features and options included, but many, many people simply don't want or need all those options.

Addressing the 'Low-Expectations' Market

For instance, Apple's PowerBooks are a fantastic value when you consider all the ports, the great screens, and the size and weight of the units. The problem, however, is that the vast majority of users would rather pay a lot less for a unit that is uglier, thicker and heavier.

So while Apple competes very well at the high end, it has ignored that low end that will settle for less sizzle but still needs the power of a PowerBook. Were Apple to offer a product it could manufacture less expensively alongside its flagship PowerBook, it could do so without sacrificing margins.

The G5 is another example. I don't think Apple could charge less for the G5 because of the casing, the cooling system, and all of the other goodies that go into the G5 Power Mac -- certainly not without sacrificing margins. The end result is that Apple's entry-level tower is priced significantly higher than towers that sold by Wintel vendors. I believe that Apple could sell many more units by addressing this shortcoming and offering a G5 tower with less sizzle at a lower price alongside what would then be its more powerful and snazzier main tower line.

In other words, Apple needs to address the entry-level market -- no, let's call it the low-expectations market. The company can do this, not by competing with Dell head-to-head on price, but by offering less expensive, less snazzy computers that are cheaper to build. By doing so, Apple could grow its user base at a faster clip, perhaps even increasing its market share while creating a feedback loop in the process that leads to yet more sales.

Stupefying Marketing Strategy

Marketing is the other bugaboo in Apple's strategy right now, at least for the Mac. Apple's iPod marketing is firing on all cylinders, and Apple has really sold its entire musical lifestyle message. The company's success in this market has been amazing.

On the PC side of things, however, Apple's commercial campaigns have failed nine times out of 10. "Think Different" was a great campaign, but it needed a message of substance to balance out its branding theme. The Switcher campaign was another great success, despite opinions to the contrary, helping to sustain the company at a time when its installed user base was waiting around for Motorola (or IBM, as it turned out) to solve the MHz problem. What would have made it even better, however, would have been a series of commercials actually showing something like Mac OS X, and how, specifically, it could make your digital life better.

Indeed, Apple has never advertised Mac OS X. Not once. It's the company's crown jewel, and Apple has never advertised it. It's stupefying.

The same thing goes for Apple's hare-brained attempt at marketing iDVD and iMovie (the couple getting married on a beach). The branding and lifestyle messages were great, but they needed an accompanying message of "this is how iMovie and iDVD works," delivered with examples of the product at work. That would have helped to hammer the message home. The vague, fuzzy lifestyle ads by themselves, however, didn't give viewers any reason to care.

Marketing Boot Camp

Multipronged campaigns can be enormously effective, and it is something that Dell does really well. For every Dell Dude ad, there was also a commercial about specific Dell computers. For every "Buy this now because it is cheap!" commercial today, Dell puts out a great campaign built around the "Computer Boot Camp" idea, which emphasized that you can tell Dell what you plan to do with your computer, and Dell will tell you which PC to buy. What a great way to bring in new customers!

The failure of Apple's Mac marketing is in the pudding. The company's sales have languished for years now, and marketing might be a bigger culprit than the above-mentioned lack of proper entry-level and low-expectations offerings. If Apple could make its Mac marketing as effective as its iPod marketing and as good as the Mac itself, the company's sales would take off.